| Residential Construction Is in Its Darkest Period |
| Written by Jonathan Smoke | |
| 01.22.2009 | |
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Discuss this article on the forums. (0 posts) It didn’t take a crystal ball to predict that residential construction would end 2008 at record lows. Today we got confirmation from the Commerce Department that indeed residential construction has fallen to the lowest level we have on record. The Commerce Department reported that total permits in December were at a seasonally adjusted annual rate of 549,000 units, which was 10.7% below the revised November rate of 615,000 units. Single-family permits in December were at a rate of 363,000 units or 12.3% below the November figure of 414,000 units. Total housing starts in December were at a seasonally adjusted annual rate of 550,000 units, or 15.5% below the revised November estimate of 651,000 units. Single-family housing starts in December were at a rate of 398,000 units or 13.5% below the November figure of 460,000 units. All declines were statistically significant in this survey based series. Records go back to January 1960 on permits. Prior single family permit lows were set in the early 1980's recession, so here’s proof that if you are in this industry now you are living through the worst downturn we’ve ever experienced. Check out the slide from the peak in the fall of 2005. The peak of single family permits was 1,798,000 in September 2005. So December’s preliminary number of 363,000 seasonally adjusted units is a decline of 80%. Never before (as long as the government has been recording data) has the single family market declined so much or so fast. Interestingly the total permit number had its historical high not during this past boom but way back in 1972. In December 1972 we had a high water mark for total permits of 2,419,000 units. It then fell over the course of 27 months to 709,000 total units in March 1975. That was a decline of 71%. We’ve never regained that peak level. Indeed we never crossed the 2 million permit line until the heart of the last false boom. Two million permits a year is clearly not sustainable based on the real pattern of household growth. So if we consider 1.5 million a more realistic peak, it took 20 months for the housing market to recover from the early 1970s downturn. So if this downturn is worse, and we may not yet be at the very bottom, history would tell us to look to 2011 before the industry turns back to some form of normalcy. As I look around the Builder Show, I have to wonder if so many companies can hold out for that much longer. But for those who survive, it will be a far less competitive landscape when the market finally regains its footing. 
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